City council Staff Report
Meeting: March 16, 2023
Subject
Consider the City Manager’s Third Quarter Financial Report for Fiscal Year 2022-23 Recommended Action
Receive the City Manager’s Third Quarter Financial Report for Fiscal Year 2022-23; Adopt Resolution No. 23-XXX and Budget Modification 23-277 decreasing appropriations by $2,758,528 and increasing revenues by $4,902,598 Reasons for Recommendation
Background
On June 9, 2022, the City Council adopted the Fiscal Year (FY) 2022-23 Budget, a $130,587,325 spending plan funded by $130,244,157 in revenue and $343,168 in fund balance. The FY 2022-23 Adopted Budget reflected a $5.1 million increase from the FY 2022-23 Proposed Budget, mainly due to operating changes, the City Work Program, and the Capital Improvement Program.
As described in the City Manager’s First Quarter Financial Report presented to the City Council on November 15, 2022, the budget was revised to account for encumbrances and carryover appropriations. As part of the FY 2021-22 year-end close, additional funds were carried forward from FY 2021-22 to FY 2022-23 due to encumbrances of $13,280,075 and carryover appropriations of $65,916,968. The largest encumbrances were for capital projects ($7.4 million) and The Rise (formerly known as Vallco Town Center) ($2.3 million), while the largest carryovers were for capital projects ($34.3 million) and The Rise ($19.7 million).
The City Council approved $6.0 million in additional appropriations during the first three quarters of FY 2022-23. This includes $2.4 million for negotiated amendments to the City's employee compensation programs, $0.7 million for the Memorial Park Specific Plan, $0.7 million for vehicle and equipment replacement as part of the First Quarter Financial Report, and $0.6 million for the Housing Element.
As a result of these budget adjustments, encumbrances, and carryovers, the amended budget as of March 31, 2023, totaled $215,768,924. The budget adjustments are summarized in the table below.
Third Quarter Financial Report Summary of Budget Adjustments by Fund For detailed descriptions of the budget adjustments, please refer to Attachment C.
Discussion
The Third Quarter Financial Report, reported as of March 31, 2023, is a critical tool for the City to evaluate its current revenue outlook and make necessary adjustments to the budget in response to changing spending priorities. It provides an overview of the City's budget status, including its revenue outlook, expenditure patterns, and other key financial metrics. Additionally, the report helps the City ensure that it stays on track toward achieving its goals and objectives by providing valuable insights into the City's financial performance. By using this information to make informed decisions and take appropriate actions, the City can maintain its fiscal sustainability.
There are minimal requests for funding in the third quarter report. In addition, staff is also recommending defunding some Capital Improvement Program (CIP) projects and increasing revenue in some tax categories to better align year-end actuals with the budget. The City will continue to closely monitor revenue and expenditure trends in the coming months. This ongoing analysis is critical to ensuring that the City's budget remains responsive to the needs of its constituents and is aligned with the City's goals and objectives. By proactively managing its budget, the City can remain fiscally responsible and provide essential services and programs to its community.
General Fund
The chart below shows amended budget, third quarter, and year-end revenues and expenditures. 4-Year Comparison of Revenues, Expenditures, and Changes to Fund Balance ($ in millions)
The General Fund's historical financial data indicates that amended expenditures have often exceeded amended revenues, leading to a decrease in fund balance. This decrease in fund balance is not due to a structural deficit; rather, the City transferred excess fund balance from the General Fund to the Capital Reserve as part of its Fund Balance Policy. The City's encumbrance and budget carryover process has resulted in increases to fund balance at the end of most fiscal years.
By continuing to monitor and manage its financial resources effectively, the City can ensure that it maintains a healthy fund balance in the General Fund.
Revenue
General Fund revenue is tracking at $16.3 million, or 19%, lower than the same time last year due to changes in the City’s revenue sources as shown in the following table.
Comparison of FY 2021-22 and FY 2022-23 Third Quarter Revenues General Fund
Sales Tax revenue is $23.3 million, representing a 33% decline from the previous year due to lower business-to-business and County pool sales tax revenue. The City's sales tax revenue is derived from five primary economic categories, including business-to-business, state and county pools, restaurants and hotels, general consumer goods, and fuel and service stations. County pool revenue is based on the City's share of direct sales tax in the County. As a result, when sales tax decreases, the City's share of the County pool decreases.
In FY 2022-23, the City's business-to-business sales tax revenue is lower than in the previous fiscal year due to a shift from online to in-store shopping. From FY 2019-20 to FY 2021-22, the COVID-19 pandemic significantly impacted the City's revenues from sales taxes, but certain sectors, such as business-to-business sales tax and County pool allocation, had experienced an increase. This was mainly attributed to the rise in online sales due to statewide shelter-in-place mandates and the higher demand for computer and electronics equipment due to a shift to remote work during the pandemic.
Although the City's sales tax revenues reached historic highs in FY 2020-21 and FY 2021-22, the City considers it a one-time event. The recovery of the restaurant and hotel, general consumer goods, and automotive industry groups did not offset the declines in business-to-business sales tax and County pool allocation as online sales decreased from their recent historic highs.
The California Department of Tax and Fee Administration (CDTFA) manages the collection and administration of sales and use taxes, which is a significant source of revenue for the state and local governments. Businesses are required to register for a sales tax permit and collect taxes from their customers, and the collected taxes are then remitted to the CDTFA for distribution to the relevant local governments. In addition, the CDTFA conducts audits to ensure tax compliance by businesses. The City receives a portion of the sales tax revenue generated within its boundaries, which funds a wide range of City services and programs.
In December 2021, the California Department of Tax and Fee Administration (CDTFA) notified the City of an ongoing audit concerning one of its taxpayers. In March 2023, the City received a verbal notification from the CDTFA, stating that there may have been a misallocation of tax funds to the City, which could potentially affect City revenues. The CDTFA is anticipated to issue a formal letter in the next four to six months, containing the final results of the audit and the actual amount of money that has been misallocated.
As a result, in FY 2023-24, the City expects a 73% decline in sales tax revenue from original FY 2023-24 budget estimates and an overall reduction in total revenue of 28%, equivalent to $30 million. Sales tax revenues are estimated to generate $11.4 million in FY 2023-24, down 64% from the FY 2022-23 Adopted Budget. No adjustments are being made to sales tax in the current fiscal year as a decision by CDTFA will not occur until after the fiscal year close.
Property Tax revenue increased by $1.5 million, or 8%, compared to last year. In FY 2022-23, the City’s property tax roll grew $2.08 billion, or 7.2%. This growth was $1.09 billion more than in FY 2021-22 when the property tax roll grew by $986 million, or 3.5%. Residential use values increased $1.26 billion, or 7.2%, representing 61% of all growth experienced in the City. Commercial properties increased by $1.07 billion, or 13.1%, due to the addition of assets by Campus Holdings at the Apple site. Industrial use grew $280 million, or 24.7%, due to Apple parcel growth, some of which showed the transfer of assets from the unsecured to the secured roll. Unsecured assets decreased by $655 million, or 38%.
The growth in home sales was strong in 2021, leading to an increase in median sale prices reflected in the 2022-23 tax rolls. Although many cities saw median price increases, new concerns over rising interest rates and inflation are leading to a decrease in home sales. The median sale price for Cupertino detached single-family homes in January through December 2022 was $2,932,500, an increase of $122,500 or 4.36% from the same period in 2021. The annual consumer price index (CPI) applied per Proposition 13 was 2% this year after a 1.036% increase in the prior year.
The City’s property tax base remains strong and HdL, the City’s property tax consultant, is projecting property tax growth over the next five years as shown in the table below.
Transient Occupancy Tax (TOT) revenue increased by $2.2 million, or 98%, compared to the previous year due to increased travel, but it is still lower than pre-pandemic levels. This significant increase is due to the relaxation of pandemic-based travel restrictions that previously reduced travel. With increased travel and employees returning to work onsite, the City's TOT revenues have been directly and significantly affected. The average daily rates and occupancy rates for hotels are now closer to pre-pandemic levels, as shown in the table below.
Average Daily Rates and Occupancy Rates by Month
Hotels in Cupertino
TOT was originally budgeted to end FY 2022-23 at $5 million. However, staff expects to exceed the estimated $5 million in the current fiscal year. The anticipated increase is due to the relaxation of prior pandemic-based restrictions, allowing for increased travel. Staff anticipates a recovery to reach $7.5 million in FY 2023-24, which is a 50% increase from the FY 2022-23 Adopted Budget. To ensure accurate monitoring of these activities, staff will continue to bring forward recommendations and adjustments as necessary. Economic regulations and other factors impacting TOT revenues will be monitored, and the impact will be reported as part of the quarterly financial reports.
Utility Tax increased by approximately $725,000, or 34%, over the previous third quarter period due to the timing of Utility User Tax (UUT) payments recorded.
Franchise Fees increased by approximately $240,000, or 16%, primarily due to increased Recology franchise fees collected.
Other Taxes decreased by approximately $523,000, or 35% primarily due to decreased property transfer taxes.
Licenses and Permits decreased by approximately $60,000, or 2%, which is a nominal change.
Use of Money and Property increased by approximately $486,000, or 32%, due to increased interest earnings from the City’s investment portfolio.
Intergovernmental Revenue decreased by $2.6 million, or 66%, representing a 66% decline compared to the same period last year. This reduction is primarily due to the recognition of American Rescue Plan Act (ARPA) revenue in the previous fiscal year (FY 2021-22). In May 2023, the City was able to fully realize all revenue related to ARPA, due to Treasury rules that allowed the City to claim all lost revenue using a standard allowance if the loss was less than $10 million.
Charges for Services decreased by $1.8 million, or 18%, driven mainly by decreases in cost allocation charges and general service fees.
Fines and Forfeitures increased by $28,000, or 15%, primarily due to increased citations administered over the prior year.
Miscellaneous Revenue decreased by approximately $322,000, or 22%, primarily due to a restitution payment in FY 2021-22 related to the 2014 embezzlement. This decrease is offset by increases in a donation agreement for sheriff services and community amenity payments for the Cupertino Village and De Anza Hotel.
Transfers In decreased by $4.8 million, or 99%, due to the one-time transfer of funds to General Fund departments as part of the American Rescue Plan Act funding strategy in FY 2021-22. In May 2023, the City was able to fully realize all revenue related to ARPA, due to Treasury rules that allowed the City to claim all lost revenue using a standard allowance if the loss was less than $10 million.
Other Financing Sources decreased by $39,000, or 37% due to the timing of refundable deposit revenues received.
Expenditures
General Fund expenditures are down $10.3 million, or 13%, when compared to the same time last year. The following table shows the differences between General Fund expenditures as of the third quarter in the current fiscal year and the prior fiscal year:
Comparison of FY 2021-22 and FY 2022-23 Third Quarter Expenditures General Fund
Salary and Benefits have increased by approximately $2.2 million, or 10%. This increase in compensation is primarily due to negotiated cost-of-living adjustments approved by the City Council on August 16, 2022 and 14 new full-time benefitted positions (FTE) added in the FY 2022-23 Adopted Budget. Benefit increases were primarily driven by retirement and workers’ compensation costs.
Materials costs have increased by approximately $524,000, or 17%, primarily due to increases in Public Works materials costs, particularly water and electricity costs.
Contract Services have increased by approximately $2.1 million, or 14%, primarily driven by the rise in the City’s law enforcement contract with the Santa Clara County Sheriff’s Office.
Cost Allocation decreased by approximately $1.2 million, or 13%, primarily due to decreased Innovation & Technology and Human Resources Cost Allocation Plan (CAP) charges.
Capital Outlay costs decreased by approximately $16,000, or 50% mainly due to decreased capitalizable facilities costs.
Special Projects increased by approximately $117,000, or 6%, due to fluctuations in one-time expenditures.
Contingencies were higher last year due to the purchase of a sound meter for code enforcement.
Transfers Out decreased by approximately $14.1 million, or 54%, due to the one-time transfer of funds to General Fund departments as part of the American Rescue Plan Act funding strategy as well as a Mid-Year transfer to the Capital Reserve in FY 2021-22.
Other Financing Uses decreased by approximately $73,000, or 15%, due to refundable deposit on-call contracts for the Community Development Department.
Special Revenue Funds
Revenue
Special Revenue Funds revenue is tracking at $15.6 million, or 67%, lower than the same time last year primarily due to a one-time park dedication fee in FY 2021-22 and decreased transfers from the General Fund.
Comparison of FY 2021-22 and FY 2022-23
Special Revenue Funds Third Quarter Revenues
Other Taxes decreased by approximately $8.3 million, or 91%, due to decreased park dedication fees. In FY 2021-22, the City received a one-time park dedication fee due to a development agreement for Westport, which contributed to the Other Taxes revenue that year.
Use of Money and Property increased by approximately $36,000, or 8%, due to increased interest earnings from the City’s investment portfolio.
Intergovernmental Revenue increased by approximately $200,000, or 9%, due to increased SB1 and Gas Tax revenues and a Highway Safety Improvement Program (HSIP) grant for the Homestead Road/De Anza Traffic Signal Modification project.
Charges for services decreased by approximately $190,000, or 16%, primarily due to decreased engineering fees. In FY 2021-22, the City received a one-time traffic impact fee due to a development agreement for Westport, which contributed to the Charges for Services revenue that year.
Fines and forfeitures were higher last year due to revenues that were incorrectly recorded in the Environmental Management Clean Creek Storm Drain Fund and reclassified to the General Fund later in FY 2021-22.
Transfers In decreased by approximately $7.3 million, or 71%, due to decreased transfers to the Transportation Fund and capital projects.
Interfund transfers are the movement of cash between one or more funds. As part of the Adopted Budget process, transfers from the General Fund to other City funds serve as operating subsidies to ensure that each fund has a positive fund balance at the end of the fiscal year. Additionally, when Capital Improvement Program (CIP) projects are authorized by City Council, a transfer from the Capital Reserve to the appropriate fund is necessary to record the costs and activities of the project. For more information on the City’s operating and capital transfers, refer to the General Fund Contribution Schedule and General Fund Transfers in the Financial Schedules section of the FY 2022-23 Adopted Budget.
Expenditures
Special Revenue Funds expenditures are tracking at $2.4 million, or 32%, higher than the same time last year due primarily to increases in capital outlays.
Comparison of FY 2021-22 and FY 2022-23 Third Quarter Expenditures Special Revenue Funds
Salary and Benefits increased by approximately $0.2 million, or 11%, primarily due to negotiated cost-of-living adjustments approved by the City Council on August 16, 2022.
Materials decreased by approximately $0.1 million, or 18% primarily due to decreased CDBG grant expenditures.
Contract Services increased by approximately $0.2 million, or 95%, primarily due to a street pavement maintenance project.
Cost Allocation decreased by approximately $0.1 million, or 10%, primarily due to decreased Innovation & Technology and City Council CAP charges.
Capital Outlays increased by approximately $2.0 million, or 114%, due to the Orange Avenue Sidewalk Improvements and Memorial Park Pond Repurposing projects.
Special Projects remained relatively unchanged from the previous year.
Transfers Out increased by $0.2 million, or 47%, primarily due to a transfer from the Park Dedication Fund to the Capital Improvement Fund for the Memorial Park Specific Plan.
Debt Service Funds
Revenue
Debt Service Funds revenue is similar to last year.
Comparison of FY 2021-22 and FY 2022-23 Third Quarter Revenues Debt Service Funds
Expenditures
Debt Service Funds expenditures are similar to last year.
Comparison of FY 2021-22 and FY 2022-23 Third Quarter Expenditures Debt Service Funds
Capital Projects Funds
Revenue
Capital Projects Funds revenue is lower than last year due to fewer transfers to fund capital projects.
Comparison of FY 2021-22 and FY 2022-23 Third Quarter Revenues Capital Projects Funds
Expenditures
Capital Projects Funds expenditures are lower than last year due to fewer transfers to fund capital projects and reduced expenditures for capital projects.
Comparison of FY 2021-22 and FY 2022-23 Third Quarter Expenditures Capital Projects Funds
Enterprise Funds
Revenue
Enterprise Funds revenue is tracking at approximately $0.5 million, or 10%, higher than the same time last year due primarily to increased charges for services.
Comparison of FY 2021-22 and FY 2022-23 Third Quarter Revenues Enterprise Funds
Use of Money and Property increased by $65,000, or 15%, due to an increase in field permit rentals and increased interest earnings from the City’s investment portfolio.
Intergovernmental Revenue is up $84,000 due to a grant to assist with meeting the requirements of Senate Bill (SB) 1383, the State’s Short-Lived Climate Pollutant Reduction Strategy.
Charges for services increased by approximately $830,000, or 22%, primarily due to increased revenues from Parks and Recreation programs and classes. Programs and classes returned as pandemic restrictions eased.
Transfers In are down approximately $0.5 million, or 55%, due to decreased transfers from the General Fund.
Expenditures
Overall expenditures are tracking at $0.7 million, or 13%, higher than the same time last year due primarily to increases in compensation and contract services.
Comparison of FY 2021-22 and FY 2022-23 Third Quarter Expenditures Enterprise Funds
Salary and Benefits increased by approximately $0.4 million, or 29%, primarily due to negotiated cost-of-living adjustments approved by the City Council on August 16, 2022.
Materials increased by approximately $77,000, or 34%, primarily due to increased expenditures for electricity, small tools and equipment, and general supplies.
Contract Services increased by approximately $0.5 million, or 19%, primarily due to increased programs and classes provided by Parks and Recreation. Programs and classes returned as pandemic restrictions eased.
Cost Allocation decreased by approximately $0.2 million, or 24%, primarily due to decreased Finance and Human Resources CAP charges.
Capital Outlays decreased by approximately $0.2 million, or 100%, due to projects that differ in scope and timing from year to year.
Special Projects increased by approximately $0.1 million, or 147%, due to projects that differ in scope and timing from year to year.
Other Financing Uses decreased by approximately $14,000, or 25%, due to lower deprecation expenses.
Internal Service Funds
Revenue
Internal Service Funds revenue is tracking at $1.4 million, or 25%, higher than the same time last year due to an increase in transfers in.
Comparison of FY 2021-22 and FY 2022-23 Third Quarter Revenues Internal Service Funds
Use of Money and Property increased by $38,000, or 54%, due to increased interest earnings from the City’s investment portfolio.
Charges for Services decreased by approximately $472,000, or 13%, due to decreased cost allocation charges. Cost allocation decreased due to lower cost allocation expenses that need to be allocated.
Transfers In increased by approximately $1.8 million, or 107%, due to increased transfers from the General Fund to the Innovation & Technology and Compensated Absences Fund.
Other Financing Sources increased by approximately $50,000, or 18%, due to higher depreciation expenses.
Expenditures
Internal Service Funds expenditures are tracking at $0.5 million, or 10%, higher than the same time last year due primarily to increases in materials and contract services.
Comparison of FY 2021-22 and FY 2022-23 Third Quarter Expenditures Internal Service Funds
Salary and Benefits increased by $0.1 million, or 4%, primarily due to negotiated cost-of-living adjustments approved by the City Council on August 16, 2022.
Materials increased by $184,000, or 23%, mainly due to increases in Innovation & Technology software expenditures.
Contract Services increased by $255,000, or 44%, largely due to increases in workers’ compensation insurance premiums.
Special Projects decreased by approximately $53,000, or 10%, due to the timing of expenditures for vehicle and equipment replacement.
Other Financing Uses remain relatively unchanged from last fiscal year.
Budget Adjustment Requests
The City's departments regularly evaluate their budget expenditures throughout the fiscal year to ensure they stay within their budget appropriations. In case of any variance, they can request budget adjustments as necessary as part of the quarterly reports.
As of the third quarter, some departments are requesting budget adjustments to ensure that they stay within their budget appropriations by year-end. In addition, staff is also recommending defunding some Capital Improvement Program (CIP) projects and increasing revenue in some categories to better align year-end actuals with the budget. The recommended adjustments are summarized below.
Hidden Treasures Proceeds
The Parks and Recreation department is requesting a one-time expense of $14,347 to cover the costs of running an event. This amount has been funded by community donations received at the Senior Center, and will be factored into the total cost of the event. Any remaining funds will be incorporated into the Stay Active Fund to support future programs.
To help cover the expenses of the program and sustain the Stay Active Fund, staff is requesting permission to use the revenue generated from the Hidden Treasures event. This amounts to $14,347 and will be used to reimburse the costs of the program, ensuring that the department can continue to provide high-quality activities for the community.
Revenues and Bank Charges - Request for Additional Funds The Parks and Recreation department requests a one-time expense of $99,611 which will be offset from revenues from the Blackberry Farm (BBF) Golf Course, Cupertino Sports Center, and Youth and Teen. The revenue received to date has exceeded what was originally estimated, requiring additional funds to cover the bank charges from the additional revenue earned and projected revenue for the rest of the fiscal year. The bank charges incurred by the City are 4.25% of the revenue earned. These charges are associated with credit card transactions and are not currently passed on to the customer.
Retiree Health
Staff recommends seeking a reimbursement from the Section 115 OPEB Trust for retiree health expenses in FY 2021-22 and FY 2022-23. This trust was set up by the City in FY 2009-10 to support its Other Post-Employment Benefits (OPEB) obligations. The Section 115 OPEB Trust is solely designated for retiree health costs, and the funds can be used to pay the benefits administrator or to reimburse the City for OPEB Plan benefits and costs.
It's worth noting that the OPEB plan is currently more than 100% funded, with a balance of $33.3 million as of March 31, 2023. This presents an opportunity for the City to cease General Fund transfers to the Retiree Health Fund.
Transient Occupancy Tax (TOT)
As of the current period, Transient Occupancy Tax (TOT) revenues have exceeded original projections. Moreover, Apple will be hosting their Worldwide Developers Conference in Cupertino in June 2023, which is expected to generate additional revenue for the City.
Given these developments, staff recommends that we increase our estimate for sales tax revenue by $1 million. This adjustment will better align our year-end projections with the increased revenue that we anticipate from TOT and the Apple event. This will help ensure that we have accurate and realistic revenue estimates, which will be critical for effective budget planning and financial management for the City.
Library Utilities
The Public Works Department requests an increase in the library utilities budget due to utility costs exceeding original projections. The current budget is expected to be expended before the end of the fiscal year. These expenses are reimbursed annually by the Santa Clara County Library District.
Wilson Park Maintenance
The Public Works Department requests an increase for sewer services as utility costs have increased beyond budget projections.
Apple Park Transportation Demand Monitoring Program
The Public Works department requests an increase which will be offset by a deposit from Apple. Funds will be used to continue years 3 and 4 of the City’s traffic monitoring of the Apple Park campus, as required per the project’s conditions of approval. Monitoring of traffic at Apple Park is required to ensure that the site’s traffic generation is within thresholds established under their approved development permit.
Windscreens Replacement
Currently, the screens at the Sports Center’s tennis courts are torn due to natural wear and tear, allowing more dust, dirt, and trash to accumulate on the courts creating a safety hazard for players. Staff requests an increase to replace and install the windscreens.
CIP Project Defunding
CIP has recently prioritized both the ongoing and proposed projects for FY 2023-24. Taking into account the project ranking sheet that was included in the March 7th Council meeting staff report attachments, staff carefully reconsidered both active and dormant projects and updated the prioritization list, which is now reflected in Attachment I. Projects that fall below the line are considered low-priority. As a result, staff recommends defunding $3.2 million in projects, which are listed in the table below.
Fund Balance
The City’s General Fund ended FY 2020-21 with $96.9 million in total fund balance. Staff anticipates the General Fund will end FY 2021-22 with $110.0 million in fund balance, an increase of $13.1 million from the prior year, due to revenues being higher than expenditures. At mid-year, staff projected the General Fund to end FY 2022-23 with $121.5 million in fund balance. As of third quarter, the General Fund is expected to end FY 2022-23 with $122.4 million in fund balance, with $64.1 million in unassigned fund balance.
General Fund Classification of Fund Balance
To date, the City’s external auditors have not completed their review of the City’s financials. Revenue, expenditure, and fund balance totals listed in this report are preliminary and subject to change after a full review by the City’s auditors. City Staff does not anticipate many, if any, changes to these figures.
Per the City’s Fund Balance Policy, unassigned fund balance over $500,000 is to be used in the following order to replenish committed/restricted fund balances with any remaining balances to be placed in the Capital Reserve:
Economic Uncertainty Reserve
CalPERS Reserve (Section 115 Pension Trust)
Capital Projects Reserve
Sustainability Reserve
Unassigned
As of third quarter, all priority areas have been fully funded. Per the City’s Fund Balance policy, it has been the City’s practice to recommend the transfer of unassigned fund balance as part of the mid-year financial report. However, this year, the City did not recommend the use of unassigned fund balance at mid-year due to the uncertainty surrounding a sales tax audit of one of the City’s taxpayers by the California Department of Tax and Fee Administration (CDTFA). While the impact of this audit is unknown, it has the potential to significantly affect the City's sales tax revenues.
Staff anticipates bringing recommendations on the use of fund balance to the City Council once more information regarding the sales tax audit is available. The City is committed to maintaining a responsible and sustainable approach to its financial management, and will continue to closely monitor and analyze revenue and expenditure trends in order to make informed budgetary decisions.
Staffing
As of March 31, 2023, the FY 2022-23 Amended Budget includes a total of 226 full-time equivalent (FTE) positions.
City Manager Discretionary Fund
In the FY 2022-23 Adopted Budget, City Council approved $75,000 in funding for the City Manager Discretionary Fund. The quarterly financial reports will detail the City Manager’s use of the discretionary fund and may include recommendations to replenish depending on the extent and nature of use. As of March 31, 2023, $12,163.50 has been used for the following:
$2,263.50 for environmental consulting services for the initial preparation of a Phase I environmental site assessment at 21801 Stevens Creek Boulevard; and $9,900 for PlaceWorks to review the Permanente Creek restoration project.
Special Projects
Beginning FY 2022-23, the quarterly financial reports will provide a status update on special projects including the budget, amount spent, and estimated completion date. See Attachment F for FY 2022-23 special projects as of March 31, 2023.
Grants
In February 2019, the City contracted with California Consulting to identify and apply for State and Federal grants on the City's behalf. Originally under Public Works, the contract was later transferred to Administrative Services in the amount of $75,509 in FY 2022-23. The pilot program aims to centralize the grant function and maximize grant opportunities. Updates on the progress of the grants will be provided in the quarterly financial reports, including this third quarter report.
During FY 2021-22 and 2022-23, the City applied for 19 competitive grants totaling $32.9 million. To this date, the City has been awarded $21 million. Furthermore, during FY 2018-19, 2019-20, and 2020-21, the City applied for 8 additional grants totaling $8.3 million. Of these 8 grants, the City has been awarded $7.4 million.
Also, during FY 2021-22 and 2022-23, the City applied for 15 non-competitive grants totaling $4.1 million. See Attachment G for further details on grants applied, pending, awarded, and not awarded.
Capital Improvement Program
Beginning FY 2022-23, the quarterly financial reports will provide a revised estimate and update on Capital Improvement Program (CIP) projects. The Public Works Department recommends defunding $3.2 million in CIP projects as described above. See Attachment H for the status of projects and I for a ranking of projects.
Sustainability Impact
No sustainability impact.
Fiscal Impact
Based on the Third Quarter Financial Report, the City's current financial position is stable. City staff recommends a decrease of $2,758,528 to appropriations and an increase of $4,902,598 to revenues, which would increase fund balance by $7,661,126. The City will continue to monitor its revenue and expenditure trends closely to ensure it remains on track toward achieving its budgetary goals and objectives.
California Environmental Quality Act
Not applicable.
Prepared by: Thomas Leung, Budget Manager
Reviewed by: Kristina Alfaro, Director of Administrative Services Approved for Submission by: Pamela Wu, City Manager
Attachments:
A – Fiscal Year 2022-23 Third Quarter Financial Report
B – Draft Resolution
C – Description of Carryovers and Adjustments as of March 31, 2023 D – Description of Budget Transfers as of March 31, 2023 E – FY 2022-23 Third Quarter Recommended Adjustments
F – FY 2022-23 Third Quarter Special Projects Update as of March 31, 2023 G – Competitive and Non-Competitive Citywide Grants Tracking H – CIP Project Status May 2023
I – CIP Project Ranking May 2023
17 Encumbrances are outstanding commitments related to unfilled purchase orders or unfilled contracts that are rolled over to the following fiscal year until those obligations are fulfilled or terminated. Carryover appropriations are unencumbered funds for unfinished projects carried over to the following fiscal year to be spent for the same purpose for which they were approved.
Secured property generally includes buildings and land, whereas unsecured property generally includes properties that are portable, such as boats, aircraft, business equipment, and other possessory interests.
The cost allocation plan (CAP) allocates indirect and overhead costs to the departments that benefit from them. Costs incurred by central service providers (e.g., City Manager's Office, City Attorney's Office, Finance, Human Resources, Facilities, etc.) are charged to the departments that benefit from the services (e.g., Parks & Recreation). The purpose of the CAP is to help the City to determine the true cost of providing services.